Shares of Netflix powered up to record highs Thursday, on the heels of the streaming-video leader announcing a price increase for U.S. customers on its two top plans.
Netflix stock closed at $194.39 per share, up 5.4% for the day and an all-time high. That gives the company a current market capitalization of $83.9 billion.
Earlier in the day, the company confirmed that it is raising the two-stream HD tier price to $10.99 per month, up $1 per month from the previous $9.99 monthly fee, and hiking its four-stream Ultra HD “premium” plan from $11.99 to $13.99 per month. Netflix said it was raising prices “as we add more exclusive TV shows and movies, introduce new product features and improve the overall Netflix experience.”
The price hikes will yield an additional $350 million in incremental revenue for 2018, according to estimates by UBS analyst Doug Mitchelson. That’s up 5% from the firm’s previous forecast.
Analysts said the company has a strong originals slate coming up on the fourth quarter — including “Stranger Things” season 2 (premiering Oct. 27) and “The Crown” season 2 (Dec. 8) — which should minimize the impact of customers cancelling their service. Existing Netflix subs will get a 30-day notification about when their prices will go up, starting Oct. 19.
Netflix’s “content prowess” gave it the pricing power to raise prices, according BTIG Research’s Rich Greenfield, sooner than the analyst expected. “We believe the timing of the subscription price increases is directly tied to the power of content available on Netflix this quarter,” he wrote in a blog post.
With the price increases, Greenfield expects Netflix’s global subscriber growth to slow “modestly” in 2018 (with 20.2 million net new subs vs. 20.9 million projected for 2017) and then re-accelerate in 2019 to 21.1 million net adds. “Even with the reduction in 2018 subscriber growth, our 2020 global subscribers forecast is barely impacted with over 176 million subscribers,” he added, down from his previous estimate of 178 million.
Following Netflix’s price increases in the second and third quarters of 2016, when most U.S. subs on the two-stream plan saw their monthly rate increase $2 per month to $9.99, overall churn “was noticeable but still modest relative to the size of the price increase,” UBS’s Mitchelson noted.
“We would expect [Netflix management] would be unlikely to implement such a price increase if U.S. subscriber trends were disappointing, bolstering our confidence further” that subscriber cancellations will be minimal, Mitchelson wrote in a research note. UBS maintains its “buy” rating on Netflix, with a 12-month price target of $225 per share.
As of the end of June, Netflix had about 52 million U.S. streaming subscribers, and 104 million total worldwide.
Pictured above: Netflix chairman and CEO Reed Hastings